When a victorious Donald Trump proclaimed ‘drill, baby, drill’ it appeared to signal the end for ESG. Likewise, his campaign advert seemed to say the same for DEI: ‘Kamala Harris is for they/them. I am for you.’
The six letters that have so dominated government and corporate behaviours these past few years were destined for the dump truck - the new US President, leader of the free world no less, was saying so. Since then and ahead of Trump’s inauguration, US corporations lined up one by one to publicly announce a scaling back of their wokeness. The wholesale pursuit of environmental, social, governance, diversity, equity and inclusion are dead and buried. Out too can go virtue signalling and the use of alternative personal pronouns.
Some of the biggest and until recently PC names on Wall Street, including JP Morgan, Goldman Sachs, Morgan Stanley, are publicly rowing back. Jamie Dimon, head of JP Morgan, arguably America’s and therefore the world’s Number One banker, is to boldly ‘punch back’ on laws in Texas requiring firms that do business with the state to pursue ESG. The backlash is not confined to the financial titans. Mark Zuckerberg is ending fact-checking at Meta and he stepped forward as co-host for a black-tie reception for the new White House occupant. Janelle Gale, Meta’s vice president of human resources, said in a memo that ‘the legal and policy landscape surrounding diversity, equity and inclusion efforts in the United States is changing’. The term DEI, said Gale, has become ‘charged’. Meta will no longer install tampon machines in its men’s toilets, put there for the benefit of nonbinary and transgender staff. Supermarket behemoth, Walmart, is phasing out references to DEI and ending diversity supplier programmes, closing a racial equality centre and withdrawing from a gay rights index. Truly, we are entering a different era, one in which the clock is firmly turned back.
Or are we? The truth is that company boards were already feeling the strain of having to devote so much resource to policies that did not translate easily into profits. Wars in Ukraine and the Middle East, global inflation and supply pressures, not to mention a slow recovery from the pandemic and the ongoing struggle with another set of initials, also reviled by Trump, WFH, had combined to heap pressure on the bottom line.
Trump’s resurrection and the rise of more capitals, MAGA, gave public validation to what they were saying in private. Eco and diversity initiatives and their in-house managers were coming under increasingly sharp focus. ESG and DEI were slipping down the agenda well before Trump’s return.
ESG, in particular, was proving onerous. Investment giant, BlackRock was on the end of the anti-ESG movement, so much so it lost $3bn in redemptions and its co-founder and CEO, Larry Fink, had to increase his personal security.
It’s all pointing in one direction, or is it? Public avowals in favour of ESG and DEI may be out but that doesn’t mean they will not remain very much alive. They just won’t say so and they will stop promoting those letters. A survey by of 300 investors by the PR firm Edelman Smithfield found that while 54 per cent agreed ESG would be largely defunct as a term in three years’ time, a majority said that ESG-type disclosures by companies were still useful. They will exist, but below the radar.
The US move is understandable. It does not pay to rile someone like Trump, nor does anyone wish to be held up to public ridicule and suffer federal retribution, which is his way. In those circumstances, dialling down is entirely reasonable.
But these are initiatives bigger than Donald Trump. ESG is about caring for the planet’s future, benefiting society and following best practice – none of which should antagonise anybody. Similarly, DEI is about embracing difference. Both are indicative of a modern, go-ahead corporation. Employees, investors, consumers, partners, all stakeholders, will continue to demand and look for them, even if the White House does not. Gen Z expects their presence, if not their brandishing, as a matter of course.
Where America goes, however, the rest normally follow. So far, though, no major UK or European brand has declared it is ditching woke. Just because the US government may be heading in one direction, at least for four years, does not mean the rest of the world will likely follow suit. The British administration shows no sign of wavering, similarly Brussels is firmly committed.
ESG regulations, for instance, will still apply in other countries, in places that are not blessed with the US’s economic muscle and remain vulnerable. Likewise, many US states will follow their own laws and practices. Shareholders also want ESG - they see it as showing that a company has thought carefully about risk and taken appropriate steps. Similarly, customers and workers wish to know that a business is thinking of them and their future.
Climate change is not going away anytime soon. Extreme weather incidents are becoming more common. Think Valencia and Los Angeles. The chances of them occurring must be assessed and mitigated against. Applying green tech is not a lofty ideal, adding to the burden. Done well, it can make a business more efficient; it makes sense.
A split is occurring between those who take a short-term view and those who pay more regard to the longer-term. Adam Scott, executive director of the climate action group, Shift: Action for Pension Wealth and Planet Health, said: ‘Pensions have long time horizons on their investment, so they’re starting to come around to a deep internal recognition that they have to hit climate targets or invest in that direction.’ Banks, by contrast, have relatively short-term lending horizons: ‘They don’t see past a few quarters when it comes to allocating their loan books.’
Former Bank of England governor and Canadian presidential candidate, Mark Carney, is not bending, saying this is the first generation to understand the risks associated with climate change, but the last that can do anything to lessen its progress.
DEI may be loathed in some quarters and it might have gone too far, but it is unlikely to disappear. Companies do not wish to be the one pilloried in the media and more especially on social media as having acted indecently to a staff member or consumer – reputation is paramount.
New phraseology – ‘responsible’ and ‘sustainability’ are replacing ESG and ‘belonging’, ‘well-being’, ‘engagement’, ‘togetherness’ are being substituted for DEI.
So far, no formulaic initials have emerged. They may not. Badges and shouting are to be avoided; quieter, just getting on with it, is in.
